Ep. 371: Michael Gorenstein, Cronos Group

Ep. 371: Michael Gorenstein, Cronos Group

Michael Gorenstein shares Cronos’ goals for expanding reach: “For us it’s about creating a global platform, and innovating products so that we can pilot these out, we can get the products in Canada, we can get them into consumers’ hands, and we’re on five continents now. We can immediately scale them globally.”

Michael G: That's right. I do have a mother, so that definitely ... It's always there.

Seth Adler: Cronos Group, everybody knows about Cronos Group, right?

Michael G: Possibly.

Seth Adler: Well what should we know about Cronos Group? Let's lay ... You know because you and I have met in the past, we don't know each other very well, but of course we are both chosen, so to speak.

Michael G: Right.

Seth Adler: People keep telling me that, I don't know if I believe it, but that's a whole different conversation.

Michael G: Chosen by who?

Seth Adler: Exactly. Exactly, Michael. Again, for another conversation. But just kinda get us up-to-date on Cronos, you haven't been on. So give us the lay of the land.

Michael G: So background and kinda how Cronos was formed, I started off, I came from New York, I was originally an MNA lawyer, ended up joining a fund, we were one of the earliest investors in cannabis. Back in 2015, were really looking around and trying to figure out a way to get exposure to the industry. We see the same thing that you see, that everyone listening to this sees, about the massive potential, how disruptive cannabis can be. Not just the $150 to $200 billion market that we know exists for the sort of base products, but how you can innovate beyond that.
But it was really difficult in the US to invest, because when you think about what we wanted to do, and you think about innovation and IP, it's tough to do that when you have to worry so much about how you're gonna move cash, how you're gonna do ...

Michael G: Yeah.

Seth Adler: I feel at one with you when you're talking about social media just then. That feels right.

Michael G: I think that the ... Where I sort of lost my passion, where everything's ... It was really the Facebook poke. Anything beyond that.

Seth Adler: Yeah.

Michael G: I thought we had it right.

Seth Adler: With the Facebook ... Really? That's where I immediately knew that we were doing nothing here.

Michael G: Oh the Facebook poke is great.

Seth Adler: That was nothing. That's nothing. That's not a thing.

Michael G: If you think about it, everything kind of originated from the original Facebook you had pictures, turned into Instagram, right?

Seth Adler: Sure.

Michael G: You had the little status updates, turned into Twitter.

Seth Adler: Absolutely. I'm not-

Michael G: The only thing we're missing is there's no poke app.

Seth Adler: Yeah. Do we really need one?

Michael G: Probably not.

Seth Adler: Yeah. So now this maybe we can draw hopefully some sort of picture here with you being a millennial that doesn't feel like one, with Cronos being a cannabis company that feels like a corporation. We're talking fortune 500 language, where as we always had the cannabis culture that existed. BC was in charge, seems like Toronto's in charge. When I say thins like this, or when people say things like this to you, what do you think and feel about the nature of the trajectory of the industry itself?

Michael G: Yeah, when I think of culture, I'm not thinking so much about cannabis culture, or about ... I'm thinking of the culture of the organization and how people interact with each other, what they care about. We started off living in a house together in [inaudible 00:18:56], Ontario. Still when we recruit a senior-level management person, we make them stay overnight in that house.

Seth Adler: Really? To this day?

Michael G: You learn a lot. You learn a lot when someone stays with you for a few nights.

Seth Adler: Sure.

Michael G: Hour, two hour interview, someone fakes it.

Seth Adler: Yeah.

Michael G: And you've gotta be really careful. 'Cause it's almost like a marriage. When you recruit someone to a young company like this, the most important asset you have is people. And you need to know if we're gonna be working 18 hour days, do I wanna be with you?

Seth Adler: Yeah.

Michael G: 'Cause it's not that easy to show up for 18 hours if you don't like who you're talking to and working with.

Seth Adler: Totally. So you would stay at the house, or you will stay at the house when you're-

Michael G: I'm going up there tonight. Yeah.

Seth Adler: How often do you stay at the house?

Michael G: Oh, every week.

Seth Adler: Okay.

Michael G: Yeah. So the big facility we have, it's about an hour and a half north of here.

Seth Adler: Yeah.

Michael G: It's not efficient to commute back and forth.

Seth Adler: Sure.

Michael G: So yeah, we've got a bunch of bedrooms. I mean this whole group you saw out here that's waiting, we'll all go up there. We had eight mattresses. And before we really spent any time in Toronto to learn the business, to learn and do R and D, I like being at the facility.

Seth Adler: Huh.

Michael G: So that's a lot of what you don't see in the media is I'm up at the facility and there's no service.

Seth Adler: Understood. So there are a couple of different things that I'm gonna unpack here. Number one is, the facility obviously is not down here in downtown Toronto.

Michael G: Right.

Seth Adler: So you're making sure to be close to the product. Fantastic. This other house thing is what fascinates me.

Michael G: Yeah.

Seth Adler: And I wonder, is this something ... You've been a part of big corporations, is this something that's feasible in doing if I'm a senior vice president of whatever at whatever company in whatever industry. Should I be getting a house and when I'm making a big hire for another VP kinda stay over with them?

Michael G: You know, a lot of where I look at this from, it's newer big companies, right? And that sounds crazy, but think about the largest companies in the world. You know ...

Seth Adler: Google, Facebook, Amazon.

Michael G: Google, Facebook, one of my ... I'd say you look a lot at what they're doing, you know how Google early founders and early employees, they went to Burning Man. They started off in a house. We started cultivation in a barn. So a lot of it is keeping the scrappiness, keeping the underdog mentality. When you go up and people come to meetings and say, "Okay, I wanna see ..." It's the largest purpose built indoor facility in the world we have there. And you go in, you take the meeting, and you're going into this old farmhouse first. And you see my office and you're like, "Wait, am I at the right place?" Then you go in this extremely high tech, all these robotics and automation, sequencing DNA.
The idea though is what got us to where we are, you don't wanna lose that. You think of all these movies you watch where there's the up, and then this guy, they change the way they are and they-

Seth Adler: He loses it.

Michael G: And that's the culture you wanna keep.

Seth Adler: Yeah.

Michael G: The startup mentality building.

Seth Adler: Yeah.

Michael G: So the culture is really it's about building, it's always focusing on what's next, what's innovating? We always say the fact that this is a growth industry doesn't mean there won't be disruption. That's why a lot of the moves we make, we are focusing on disruption. We have a vision, and the best analogy I'd say is we wanna be going towards Netflix, and I don't think that the right answer is to build Blockbuster trying to get to Netflix. You build Netflix.

Seth Adler: There you go.

Michael G: Yeah.

Seth Adler: Be the disruptor, not the disrupted.

Michael G: Exactly.

Seth Adler: Okay.

Michael G: You could focus on disrupting alcohol, or you focus on disrupting cannabis.

Seth Adler: I just wanna make sure that we're not talking about content play here, you're not actually trying to build ...

Michael G: Right.

Seth Adler: Right. Just wanna make sure that we understand.

Michael G: We can make content more interesting.

Seth Adler: Of course we can. Of course we can. Thank you so much Michael, for pointing that out.

Michael G: You don't need it of course, 'cause you have cannabis.

Seth Adler: Look at this, look at this.

Michael G: Yes.

Seth Adler: So two more continents to discuss.

Michael G: Yep.

Seth Adler: What are they?

Michael G: Well I think we've covered North America.

Seth Adler: Three of them. Yep. South America.

Michael G: Yep. Europe.

Seth Adler: Australia. Well we didn't do Europe yet.

Michael G: Oh sorry.

Seth Adler: Yeah.

Michael G: So we did Asia.

Seth Adler: Did Asia.

Michael G: And then Europe.

Seth Adler: Oh so that was four, you're right. I can't count. I'm a words guy, yeah. So Europe is last.

Michael G: Europe is last.

Seth Adler: But first in our hearts, of course.

Michael G: That's right.

Seth Adler: Yeah.

Michael G: The same thing, it's getting leverage from other infrastructure. So this maybe is the most anti-entrepreneurial thing, but we looked at Germany and we were the first to receive a GNP certification from Germany, we got there extremely early. And I kinda looked at the market and thought I can try and ... We started off with a relationship with one of these small five employees in a warehouse, [inaudible 00:23:29] distributors. But from my time working with a lot of big pharma, and my MNA days I was split between alcohol and pharma.

Seth Adler: That's so fascinating. Look how that came around.

Michael G: Right?

Seth Adler: You know?

Michael G: And a lot of those, really the clients, most of them were really German. Some were Swiss. And one of the things that I learned is it's not that easy to compete with big German pharma. So when I thought of do I wanna deploy all these resources, again, around the world in Germany and try and figure out how to build up the sales force? Especially when the channels are gonna move from pharma, and that's gonna be a specific channel. You're gonna have this [inaudible 00:24:06], that'll be a specific channel. You'll have recreational, specific channel.
Thought let's do what every other pharmaceutical company does and find a local pharma partner. Went to a company called [inaudible 00:24:16], I think it's about 183 years now that they've been operating.

Seth Adler: Okay. Not quite 200.

Michael G: Yeah, not quite 200.

Seth Adler: But close.

Michael G: But yeah, I think last year they manufactured and sold 300 million capsules. So we wanted-

Seth Adler: How and why would a company that's 183-years-old get caught up with you cannabis nut job?

Michael G: I mean why wouldn't they, right? Pharma companies, what they really care about is they're saying, "Okay," they'll create new molecules to treat illnesses. Right? Why not use one that exists, and it's plant-based medicine. So we went in there with data sets, and this is why the R and D focus, you're able to get companies like that comfortable. Show the receptor work you've done. Say, "Listen, there's an opportunity here. And downstream we can start the relationship, but think about how many other things we can work on. Think about what research we can do, and the potential [inaudible 00:25:12] pharmaceutical products that come out of this."
So that's really how we started off in Germany. Or at least how we started evolving. Also Poland, same thing. Went with Dell Pharma, another pharmaceutical company. And that's the model, instead of trying to build everything on our own, you really follow traditionally how CBG companies, how pharma companies scale. Only in cannabis do we have this idea where we have to be vertically integrated.

Seth Adler: Yep.

Michael G: No good.

Seth Adler: Well Colorado wrote the first adult use law, and wrote that in. So I think that that might be part of why we think that way.

Michael G: Yeah, but if you go back before, right, the law said you couldn't do any of it. So you have to evolve.

Seth Adler: Fair enough. Look at that.

Michael G: You gotta evolve.

Seth Adler: There we go. I think that's a perfect place to leave that. 'Cause we did all of the continents, that kinda brings us up-to-date. Is there anything that we missed that is currently on the table?

Michael G: Well there might be a small one, have you heard of Ginkgo Bio works and what we're doing with them?

Seth Adler: I have, but only as much as you just told me.

Michael G: Okay. So that's something-

Seth Adler: 'Cause that's very recent, right?

Michael G: Yeah, it's been obviously in the works for a while, it's been my passion project.

Seth Adler: But for me it's recent, I'm saying.

Michael G: For you, yeah.

Seth Adler: For you it's not recent, of course.

Michael G: Ginkgo is a fascinating company. Ginkgo, they're the last couple years been on CNBC's top 50 disruptor list. I think there's a big culture fit, so I'll use that work again, between us. You go in there, they'll always tell you that they're a startup. And then you look and they've been around for 10 years, they've raised $430 million US, private company, got government contracts with the department of defense. They've got ... They have actually three major contracts they announced this year. There was a DARPA, which is advanced research agency of DOD.

Seth Adler: Like the DARPA.

Michael G: DARPA.

Seth Adler: Right.

Michael G: Multiple contracts with them.

Seth Adler: That's crazy.

Michael G: Yeah. [inaudible 00:26:58], which know a few things about plants and pharmaceuticals. And then Cronos. So of course the most important one for them.

Seth Adler: Yeah, of course.

Michael G: But-

Seth Adler: I love how you're one Kevin Bacon away from DARPA now, by the way.

Michael G: Right?

Seth Adler: Yeah.

Michael G: And then it's actually kind of a network, you run into each other, it's the understanding that you have a focus on innovation. And really this is, the whole concept of synthetic biology; it touches everything. It touches consumer electronics, it touches agriculture, fragrance. One of the things that really attracted us to them is what they did in the fragrance world. The company Robertet, it's 150-year-old company in France. If you get Chanel perfume, they white label it.

Seth Adler: Got it.

Michael G: And what their business model was is they have fields in Ecuador or Columbia where they're growing out roses, large extraction operations to be able to pull out the [inaudible 00:27:52] from a rose, that's really important, and really makes the fragrance.

Seth Adler: Right.

Michael G: And stop me if this sounds familiar as a business model.

Seth Adler: I understand, but please.

Michael G: And package it and sell it.

Seth Adler: Yeah, exactly.

Michael G: What Ginkgo's able to do is actually sequence the DNA from a rose, map out the genome of a rose, understand what is the biosynthetic pathway in the rose. Take that DNA, cross-reference that with ... They have the largest meta genomic library. So basically database of all these organisms and enzymes in nature. And then understand what's the most efficient way actually to create that [inaudible 00:28:28]? And then they can actually print base pair by base pair what that sequence is, insert that new sort of DNA strand into a cell that they engineer. And then you ferment it.

Seth Adler: This is perfect. This is perfect for cannabis.

Michael G: Exactly.

Seth Adler: This is exactly what we need.

Michael G: It's perfect.

Seth Adler: Yeah.

Michael G: Yeah. So we've spent a better part of a year and a half sequencing a lot of the different genetics we have, understanding that DNA, mapping out those really metabolic pathways that we can do the same thing. And now you're able to get rose oil for a fraction of the cost, you don't have to worry about building these facilities all around the world, your supply chain issues. And flower market's the flower market, pre-grown market's there. But when you think of the extract market, and you're able to do this at a fraction of the cost, a higher purity, but also the differentiation of what you can do downstream. Thinking of THCV, CBC, CBDV, a lot of these different cannabinoids that are very difficult to get any economic quantity. That gives us the ability to innovate and produce different products, and change the effects.

Seth Adler: Yeah.

Michael G: And what we're really working on is you can take the best strain you have, and then take the best batch. So you have your best White Widow.

Seth Adler: Sure.

Michael G: What does White Widow mean?

Seth Adler: Nothing.

Michael G: But you know what you do know is if you could put it and you could test it, and you could see what's the recipe that makes it? If I break down the constituents, how much THC, CBD, CBG, what Turpin are in there. And by the way, Ginkgo can already make all the Turpin.

Seth Adler: Right.

Michael G: You can then just recreate that, and now you have a strain specific cocktail, so to speak.

Seth Adler: Right.

Michael G: You can map out that White Widow and the effect you get from White Widow, you can then put it into an [inaudible 00:30:07] bowl, you can put it into a vaporizer. So that's the opportunity there for us. It's being able to provide consistent products. And I think that's a lot of where the future goes.

Seth Adler: That's exactly where the future goes, right? I mean what else are we missing? Actually in terms of where the future goes, you kinda, when you were talking about Germany, you mentioned pharma, you mentioned neutra-ceutical, how do you see this cannabis market expanding? You mentioned verticals, I wonder what you think those are. Do you mind naming them out?

Michael G: Yeah. So I think, look, there's different ways to think of it. And I think ultimately when you think of the, call it verticals, I kind of base it off of regulations. A lot of that, and there were physical properties too, but think about even alcohol. You have still a different distribution channel for beer, for liquor, for wine.

Seth Adler: Sure.

Michael G: And you actually see alcohol companies, as big as they are, focusing on different areas because the distribution models, because the regulations. So I think traditional ethical pharma going through full-phase clinical trials, and that could apply to veterinary, that could be humans, that's its own bucket. Right? And I think you're gonna need a very different distribution model. You will need pharma. Your sales reps, and your brand everything, it's speaking to doctors and aiming at patients.

Seth Adler: That model's not gonna change.

Michael G: That model will not change.

Seth Adler: Right.

Michael G: No. Then you'll have this neutra-ceutical. And I think a lot of what's gonna change how these regulations work, is when we stop thinking about this as cannabis, and start thinking about cannabinoids. What exactly is it you're using? And you see this trend happening now, where you're really separating THC and CBD. But there's over 100 cannabinoids.

Seth Adler: Right. At least.

Michael G: If you talk to Doctor [inaudible 00:31:42], yeah. Over 140.

Seth Adler: Right. That we've identified.

Michael G: Yeah. And counting.

Seth Adler: Right.

Michael G: We haven't named them all.

Seth Adler: Well Michonne, that's why we have Michonne, he names them.

Michael G: I think he names them, [inaudible 00:31:55] discovers them. Maybe one day you or I can name one. We'll have the Adler cannabinoid.

Seth Adler: I think we should.

Michael G: I think we should work on that. You know, I think the way that they react [inaudible 00:32:07] is what the effects are. You'll see, I think it's CBC is likely to maybe go in the CBD bucket.

Seth Adler: Yeah.

Michael G: CBG.

Seth Adler: Yep.

Michael G: Even though the properties are probably even more pharmaceutical.

Seth Adler: And then the acidics.

Michael G: THC, THCV. I think the acidics-

Seth Adler: THCA.

Michael G: I think the problem with THCA because of how easily once you [inaudible 00:32:26] I think it'll probably still be an irregulated channel.

Seth Adler: I see.

Michael G: You could say, "Here's your THCA caution, don't heat it or you get high." I think the potential's gonna be there, they're gonna keep it always very regulated.

Seth Adler: So that stays in that bucket, that's interesting.

Michael G: I think it probably does.

Seth Adler: Interesting.

Michael G: I think any of the cannabinoids that have psychoactive effects. Then you look at fluorinated cannabinoids-

Seth Adler: That could have psychoactive effects is your point.

Michael G: Yeah, that could have once they're heated, right? 'Cause if you think about it, once I sell you a vape pen, it doesn't have any psychoactive effects unless you actually heat it up and use it, right?

Seth Adler: Fair enough.

Michael G: But it could be different market by market. But I think those cannabinoids, they don't have psychoactive effects, and once we have enough data those will probably start getting de-scheduled. It'll take a little longer. But that's where you see this kind of neutra-ceutical and I think it's natural health products, however you describe it. But that's where you'll see functional beverages, you could have a Gatorade or Powerade that can have CBD in it. And you can go buy any type of candy bar that has it in it.
So that's another bucket. And then finally I think the one that we're here today for, the sort of huge milestone, which we've barely even thought about. But that's recreational, it's adult use. I think that's the sort of regulated CBG that the alcohol, somewhere between alcohol and tobacco where the regs probably fall. So those are the verticals I seen.
Now within that, you can productize, you can use so many different ...

Seth Adler: And that's what you're doing for the rest of the day.

Michael G: Yeah.

Seth Adler: So I've got three final questions for you. I'll tell you what they are, I'll ask you them in order. What's most surprised you in cannabis? What's most surprised you in life? And on the soundtrack of your life, Michael, one track, one song that's gotta be on there? But first thing's first, you've given us your kind of trajectory here. What's most surprised you in cannabis?

Michael G: You know, I think I would answer this saying that there's again, two sides of the coin. What surprised me the most is how fast this has happened. But what also surprises me is how long it took. It's so intuitive. It makes zero sense that ... And there's all these ... You cold go back to the wood pulp theories. But why did it take this long?

Seth Adler: Because of those theories probably.

Michael G: Right, right.

Seth Adler: When you have the most powerful people on earth, you know, wanting it to go away, it's gonna go. A-way and away.

Michael G: But at the end of the day, I think people, the people and the popular opinion won, right? That's kinda what's happening now.

Seth Adler: There you go.

Michael G: The powerful people can't hold it back.

Seth Adler: The global Kibbutz, Michael.

Michael G: The global Kibbutz is ... Yeah.

Seth Adler: What's most surprised you in life?

Michael G: You know, I think that when you look at the way things are, and then you sort of also envision the way things should be that if you follow the way things should be, that they can actually get there if you work at it.

Michael G: But yeah, no. I think if you ... Like I've had ideas that seemed crazy, like going up to Canada and building and starting a cannabis company. No, I think it's just that not just taking things as they are, but I guess since we're in Canada let's use a Wayne Gretzky, you skate to where the ...

Seth Adler: Puck is going.

Michael G: There you go. So no, I think it's the most rewarding thing when you see where things should be, and then you're able to get them there and it benefits everyone. I think that's surprising, it's rewarding, and it's exciting.

Seth Adler: I love that answer.

Michael G: Yep.

Seth Adler: Which brings us to a more difficult answer, which is on the soundtrack of your life one track one song that's gotta be on there?

Michael G: Well you know, I guess we always to bring it back to what we're doing, I think I still gotta go with '10 Crack Commandments'.

Seth Adler: If we didn't know how old you were, we do now, right? You know? That's gonna go back to where I can see you've got a face, it's full of delight thinking about that song. And that's the reason we ask the question. Michael, thank you so much for your time.

Michael G: Thank you so much.

Seth Adler: Looking forward to checking in with you down the line.

Michael G: Great. Thank you.

Seth Adler: And there you have Michael Gorenstein from the Cronos Group, very much appreciate his time on Legalization Day in Canada. Very much appreciate your time. Stay tuned.

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